Entrepreneur
Article
By Andrew Neitlich

Raising money from investors

By Andrew Neitlich

Please see my article this month, which came out today. It is about crafting a strategic business plan to guide your business.

http://www.sitepoint.com/article/business-plan-wont-sit-shelf

The article covers an internal business plan, not the type of business plan that raises money from angel investors.

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Much of my work is with an investment banker who funds emerging companies via private placements, reverse mergers, and other creative financial techniques. From time to time we evaluate investments. When service firms come to us (e.g systems integrators, web development firms), we reject them. There really is no market at this level to invest in professional service businesses. That’s because — without proprietary technology — all we are investing in is a group of people who can leave at any time. Valuations are low, something like 1 X revenues, and so there are better ways to use investment capital.

Taking out a loan (e.g. with the SBA) is not such a great plan either, because of the paperwork and requirements. Sponsoring banks still require collateral, which means a personal guarantee and loan on your home. You are better off taking out a home equity loan, if you have the home and the equity (and any spouse agrees).

That leaves friends and family, which is always a risky proposition.

Or, you bootstrap your business and fund it internally, which to me is the best and most feasible option. It keeps you lean and mean, and you own 100% of your firm.

I’d like to hear from Sitepoint readers who have raised debt or equity for their business. Where did you go? Are you happy with the deal?

Please share your experience….

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